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Sustainable Consumption and
Consumer Sovereignty
by
Christian Schubert
Andreas Chai
The Papers on Economics and Evolution are edited by the
Evolutionary Economics Group, MPI Jena. For editorial correspondence,
please contact: evopapers@econ.mpg.de
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Sustainable Consumption and Consumer Sovereignty
Christian Schubert a,* and Andreas Chai b
a
b
Max Planck Institute of Economics, Jena, Germany
Department of Accounting, Finance and Economics, Griffith University, Gold Coast,
Australia
Abstract
There is a growing consensus in Ecological Economics that consumer preferences are neither
fixed nor given, but rather endogenously determined by socio-economic and institutional
factors. Hence, policy may promote “green” preferences directly. Yet any intervention in
processes of preference formation seems to conflict with widely held liberal intuitions,
imperfectly represented by the principle of Consumer Sovereignty (CS). We argue that a
suitably refined, dynamic version of CS may not stand in the way of certain preferenceshaping policies. By exploring different modes of consumer learning that imply varying
degrees of behavioral lock-in, we show that there is a scope for policies that influence
preference formation without violating CS. This extends the range of normatively acceptable
sustainability policies.
Keywords: Consumer Behavior; Consumer Welfare; Evolutionary Economics;
Sustainability; Consumer Sovereignty
JEL classification: D11, D63, Q58
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1. Introduction
A predominant view in Ecological Economics is that current levels and paths of consumption
are unsustainable and should be corrected accordingly. This position often builds upon the
background assumption that consumer preferences are not exogenously “given” but rather
endogenously influenced by socio-economic and institutional factors (Røpke, 2009). Hence,
it may be necessary to promote sustainability by – among other things – influencing people’s
current preferences, ideally towards “less material consumption-oriented forms of
satisfaction” (Norton et al., 1998) or “nonrival goods” (Wagner, 2006). Information
campaigns, advertisement, “nudges” (Thaler and Sunstein, 2008) or some functionally
equivalent device may be needed in order to overcome such locked-in consumption patterns.
Influencing the demand side of the economy in this way may be a particularly powerful tool
to promote sustainable behavior (Brennan, 2006). It may also enhance well-being, understood
in hedonic terms (Norton et al., 1998; Welsch and Kühling, 2011).1
This approach conflicts, however, with widely held liberal intuitions according to
which government should respect competent agents as “sovereign” by not interfering with
their preference formation. These intuitions are imperfectly captured by the highly influential
principle of “Consumer Sovereignty” (henceforth CS).2 This principle also forms the basis of
how mainstream economists assess allocative efficiency. At first sight, the conflict between
sustainability and liberal intutions seems to be impossible to solve. If consumer preferences
are to ultimately determine the allocation of resources, any attempt to manipulate these
preferences appears to amount to usurping the power of consumers. While interference in
processes of taste formation by private advertisement seems to be widely accepted, public
policies that try to do the same are generally perceived as illegitimate.We argue that in order
1
See also Costanza et al. (2007) for a more encompassing approach to measuring human welfare.
To be sure, we do not claim that this liberal principle is generally accepted in the ecological economics
literature.
2
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to clarify this issue, it is necessary, first, to explore in more detail the precise nature of the
endogeneity of consumers’ preferences. Under which specific conditions can preferences
really be considered endogenous and potentially locked in? Based on a psychologically
informed account of preference learning, we argue that new preferences are acquired either
“actively” via insightful learning involving mental deliberation, or “passively” via associative
learning which does not require conscious mental deliberation on the part of consumers.
Depending on the underlying mechanism of learning and the degree to which the consumer is
actively engaged in the accumulation of specialized consumption-related knowledge,
preferences may be more or less malleable.
These positive insights will then be used to examine whether and how the principle of
CS can be revised in such a way as to (i) make it applicable to settings where preferences
change endogenously over time, and (ii) identify legitimate ways to influence processes of
preference formation and to distinguish them from illegitimate ones.3 Such a refined concept
of CS would open up a range of practical policies that effectively promote sustainable
behavior by, at the same time, respecting fundamental liberal intuitions. Hence, it would help
provide effective sustainability policies with a more broadly acceptable moral rationale.
The argument proceeds as follows. Section 2 discusses the emerging consensus in
ecological economics about the endogenous nature of preferences. Section 3 presents an
account of the dynamic interplay between insightful and associative learning that induces
consumers to develop ever more specialized preferences. This affects the extent to which
these preferences are (i) malleable and (ii) tend to change on their own accord. On this basis,
section 4 first examines and dismisses the standard (orthodox) notion of consumer
sovereignty and then introduces a refined, dynamic concept that is argued to apply to a world
3
Scherhorn (2006) also calls for a re-definition of CS, without however going into details. In modern Ecological
Economics, there is widespread skepticism towards concepts emanating from orthodox welfare economics, see
e.g. Gowdy (2005), Gowdy and Erickson (2005, pp. 208-212).
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of endogenous preference change. It also presents some practical policy implications. Section
5 concludes.
2. Endogenous preferences and the ‘lock-in’ effect in Ecological Economics
There is a general consensus in Ecological Economics that contemporary consumption
patterns are not sustainable. Studies have shown that this applies in a wide range of
consumption activities such as energy and food consumption (Myers and Kent, 2003). The
problem is exacerbated by the fact that a large part of consumption is driven by potentially
self-defeating and wasteful status concerns (Frank, 1999), that consumers are generally
ignorant about the effect that their consumption choices have on the environment (Brown and
Cameron, 2000), and that many of the relevant consumption acts give rise to “tragedy of the
commons” scenarios. Consequently there have been calls for policies that promote
sustainable consumption by fostering pro-environmental or “green” preferences among
consumers. While the traditional textbook economics approach would be to recommend
appropriate tax and subsidy schemes (i.e. incentive management) to promote sustainable
consumption (e.g. Wagner, 2006), there is a growing tendency to reject the underlying
assumption that consumer preferences are “fixed and given” (Stigler and Becker, 1977)4, and
to explore the policy implications that are grounded in a more realistic view of preferences.
For example, Norton et al. (1998) have called on policymakers to “encourage” the adoption
of a less material lifestyle and have further argued that society should establish democratic
processes of public deliberation to discuss and re-evaluate consumer preferences.
This has led to a new focus on how consumer preferences may be affected by a
number of economic, socio-cultural and institutional factors which may cause them to change
4
Strictly speaking, Stigler and Becker argue that we cannot determine whether observed choice differences arise
due to heterogeneity in preferences or in acquired human capital. We are grateful to an anonymous reviewer for
urging us to clarify this point.
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even substantially over time (Røpke, 1999; Lintott 1998). Different stages and forms of
economic development may yield important systematic differences in the nature of
preferences (Bowles, 1998). Accordingly, there may be certain factors that have grown in
importance with the emergence of the affluent society and that may contribute to the “lockin” of consumption patterns (Sanne, 2002). The unsustainable nature of current consumption
is particularly attributed to deeply-embedded cultural changes that are beyond the
individual’s control, such as the secular rise of individualism (Røpke, 1999).
A key issue for policymakers here is whether “green” preferences can emerge on their
own accord. In some situations, consumers may be unresponsive to new information and
experiences due to sticky habits (Maréchal 2010). In other situations behavior may be very
responsive to new information and experiences that consumers are exposed to. If certain
(institutional) conditions can foster preference malleability, then this would be significant
information for policymakers who could work towards indirectly promoting sustainable
consumption patterns by creating the institutional conditions for green preferences to emerge,
rather than blatantly attempting to indoctrinate consumer preferences. There is indeed
growing evidence that at least in certain areas, consumption patterns appear to be shifting in a
“green” direction on their own accord, without any change in external incentive structures
(e.g. Pederson, 2000). To illustrate, a 1999 survey of US households suggest that 70% of
households are willing to pay at least $5 per month more for electricity from renewable
sources, with 38% willing to pay at least $10 per month more, and 21% even willing to pay at
least $15 per month more (Fahar, 1999). Indeed much work has been done since the 1980s on
how pro-environmental changes in the individual’s consumer preferences and activities can
be stimulated through non-price factors, including how the consumers’ social environment
may influence their attitudes (Ölander and Kahneman, 1995; van den Bergh, 2008).
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It is notable that many studies highlight a link between how much knowledge
consumers possess about a particular consumption activity, and their receptiveness to public
information campaigns that promote pro-environmental behavior in relation to that
consumption activity. For example, the likelihood of some action being motivated by intrinsic
motivations depends on such factors as “how interesting the act is to the consumer” and “how
much individuals may influence the nature of the act” (Frey, 1993: 645). Elsewhere, in a
study of consumers who chose to purchase green electricity, Arkesteijn and Oerlemans
(2005) found that early adopters were particularly knowledgeable of sustainable energy
features and had a positive attitude towards the environment. Hence the accumulation of
specialized knowledge by consumers represents an important factor that can account for
whether or not green preferences may emerge on their own accord.
Apart from knowledge, the other fundamental issue in understanding consumer
behavior concerns consumer motivation and the relationship between its genetically hardwired foundations, on the one hand, and cultural learned influences, on the other hand
(Norton et al., 1998; Robson 2001). In order to understand the role of biological evolution,
scholars in Ecological Economics have sought to identify a set of objective human needs.
This may help to find out to what extent current consumption goes beyond these needs and
may, then, be seen as potentially “wasteful” (Jackson et al., 2004). Needs schemas that shed
light on the functional nature of consumption, such as those developed by Galtung (1980) and
Max-Neef (1991) have attempted to explain how the long run growth of consumption
expenditure has not only involved the emergence of new goods and services to satisfy
existing needs, but also an expansion of the number of underlying needs that consumers seek
to satisfy.
While the role of needs should of course be taken seriously, these approaches suffer
from two shortcomings. First, they are difficult to apply as they tend to include relatively
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hard-to-observe needs, such as, e.g., the need for self-determination (Jackson and Marks,
1999). This poses a challenge to researchers as it is difficult to discern what types of goods
and services are used in the satisfaction of such a need. In contrast, earlier drive theories of
motivation attempted to explain human behavior as being related to a limited number of
objectively identifiable primary reinforcers whose effects can be observed in the laboratory.
For example, Hull (1943) argued that all behavior is ultimately based on four primary drives:
hunger, thirst, sex, and the avoidance of pain. This relatively short list, though oversimplified,
is much easier to manage in terms of uncovering what types of goods and services are used to
satisfy these needs.
A second drawback of these psychological schemas is that they presume the set of
needs that drive the long run growth of consumption to be preexisting, constant, and
independent of the socio-economic context of consumption. In that sense, the notion of fixed
preferences reenters through the back door. This is because the broad pattern of change in
consumption behavior that takes place as consumers become more affluent is pre-determined
by the hypothesized hierarchy of needs. In other words, the consumer’s preferences may be
non-homothetic in the sense that as income rises, the type of needs she seeks to satisfy will
change, though the manner in which these needs will change is essentially fixed. In that
sense, these approaches not only assume that all consumers possess the same set of needs, but
also that the income effects on consumption expenditure are identical across the population of
consumers. Put differently, the preferences of any two consumers with the same initial
income level will alter in an identical fashion in light of some increase in income, irrespective
of the individuals’ own experiences. Importantly, the interaction of the consumer with her
socio-economic environment is assumed not to have any effect on her set of needs. We argue
that this is a serious shortcoming of these approaches. In order to attain a better account of the
evolving nature of consumption patterns, it is important to also consider how the underlying
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needs interact with, and are mediated by, cultural settings that form the context of
consumption.
3. An Evolutionary approach to consumer learning and needs
This section discusses how a new, comprehensive account of consumer learning processes
developed in Evolutionary Economics may be useful to understanding some of these open
questions about the malleability of consumption patterns. This account describes the dynamic
interaction between, on the one hand, the way consumers acquire needs and, on the other
hand, the way they accumulate knowledge, through what is known as the consumer
specialization process (Witt, 2001). We argue that this specialization process can help shed
light on the circumstances in which preferences are either likely to be “locked-in” due to
socio-economic factors, or are subject to change due to the more “active” role played by
knowledgeable consumers. This account begins with the notion that consumer preferences are
the product of the interplay of biological and cultural evolution – a view shared by scholars in
Ecological Economics (as noted in the previous section).
With its focus on the role of knowledge and novelty as drivers of processes of
endogenous growth, Evolutionary Economics has generally sought to examine which role
learning consumers can play in introducing novelty into the economic system. Here the
consumer can be seen from two different perspectives. On the one hand, many have argued
that due to her cognitive constraints, she is guided by habits and rules, and that social
institutions, peers and experts help her form appropriate rules (Earl and Potts, 2004; Nelson
and Consoli, 2010). On the other hand, several studies have tried to account for the role of
highly specialized, creative consumers in co-developing commercial innovations (Bianchi,
2002; Buenstorf, 2003). To reconcile these two views, it must be recognized that human
learning is the evolved capability of a species to adapt to change by modifying its behavior in
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response to environmental stimuli (McFarland, 1987). Hence the question of why consumer
preferences are “locked-in” can be recast as the question of why consumer behavior is not
adapting, or is adapting at a relatively slow rate. We argue that a part of the answer is related
to the fact that the capability to learn evolved in humans over a very long time span in a
relatively piecemeal fashion, such that there was no smooth substitution of more advanced
learning mechanisms for more primitive ones (Flinn, 1997, p. 33; Sartorius, 2003, p. 30).
Rather, development was sticky, with more advanced mechanisms emerging to complement
older mechanisms. Thus it is fundamentally important to consider the existence of multiple
modes of learning, and how these modes interact, to understand why preferences may change
relatively fast in some areas of consumption, but not change at all in other areas.
To this end, we adopt Hergenhahn and Olson’s (1997) distinction between associative
and insightful learning. Associative learning describes a basic learning mechanism which
humans share with other species. This mode of learning describes human behavior in
situations where consumers appear to be “uninvolved” and “uncommitted” whilst consuming,
and are unlikely to undertake thoughtful, comparative evaluations of choices (Foxall 1990, p.
14). Rather, consumers follow simple habits or routines. The aim of such behavior is
originally the satisfaction of basic needs, which is done via the attainment of reinforcement.
These are the underlying sensations of pleasure and pain that ultimately motivate
consumption, such as the avoidance of pain derived from hunger, thirst, or the absence of
cognitive arousal (Millenson, 1967, p. 386).
An important fact which may help explain why some of the needs that drive
consumption are neither constant nor fixed is that the set of stimuli which deliver
reinforcement is altered by experience via associative learning (Witt, 2001). In particular,
formerly neutral stimuli can become secondary reinforcers when paired repeatedly with
primary reinforcers; they then exert a reinforcing effect in their own right (Anderson, 2000, p.
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39). For example, aesthetic tableware may become associated with the attainment of food,
which may lead consumers to develop a “liking” for tableware (Witt, 2001, p. 35). Thus, in
addition to basic needs, the consumer may acquire other needs that are unique to her
particular learning history, and different consumers with different learning histories will turn
out to have different sets of such acquired needs. These acquired needs are reversible in that
they may become extinct if the neutral stimuli become disassociated with primary reinforcers
(Myers and Davis, 2007). Hence by allowing a component of the consumers’ needs to evolve
in accordance with the types of reinforcers that they are exposed to, a more dynamic
approach to studying consumer preferences emerges.
In contrast to associative learning, insightful learning describes a situation in which
the consumer is in a highly alert state and predisposed to engage in mental deliberation
(Posner and Peterson, 1990). Outcomes of this process depend on the creative capacity of
agents to analyze situations in order to find appropriate solutions (Hergenhahn and Olson,
1997, p. 263). Relative to associative learning, behavior here tends to adapt at a much faster
pace and also displays greater variability. Thus consumer choice is understood as a problemsolving exercise, involving a sequence of activities, the outcome of which is principally
determined by the agents’ cognitive functioning and the way they process information (Earl,
1986). An essential determinant of learning in these circumstances is the information that
consumers possess. Key here is the consumer’s social environment in terms of the peers and
experts with whom she interacts, and her access to knowledge embodied in (informal and
formal) social institutions (Bandura, 1986; Earl and Potts, 2004).
A potential outcome of the dynamic interaction between insightful and associative
learning is a specialization process through which consumers accumulate an increasingly
refined set of knowledge and likings about a particular consumption activity (Witt, 2001). On
the one hand, the consumer’s set of likes and dislikes can guide what she tends to insightfully
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learn about in that the hedonic value of reinforcement acts as a marker that helps guide which
information is worth paying attention to (Goodson, 2003, p. 115). On the other hand,
insightful learning can influence associative learning because it can facilitate the formation of
new associations between sources of reinforcement and neutral stimuli (Witt, 2001, p. 36).
Together, the two effects may be mutually reinforcing and lead to the refinement of both
what consumers know and what they like or dislike. Via this specialization process,
consumers do not only attain greater knowledge about a particular consumption activity, but
get a more specific set of acquired (dis)likes in relation to a consumption activity. It is a wellestablished fact in consumer research that more experienced consumers have more
differentiated preferences. For example, expert bird watchers have greater interest in “lower
profile” wildlife species than unspecialized bird watchers (Martin, 1997) and specialized
tourists tend to derive more satisfaction from visiting historic sites than unspecialized tourists
(Kerstetter et al., 2001).
This account of specialization from the evolutionary perspective is quite different
from the theory of rational addiction where consumers may accumulate “personal capital”
which can influence the marginal productivity of their future consumption activities (Becker
and Murphy, 1988). In the above account, specialization leads to qualitative changes in the
nature of the consumption activity, while in Becker and Murphy’s account the accumulation
of capital only leads to changes in the marginal productivity of doing exactly the same
consumption activity as before. To use the example of birdwatchers, the accumulation of
personal capital would lead them to gain more utility from watching the same bird over and
over again, rather than developing new specific tastes for particular types of birds. Moreover,
in relation to how personal capital is accumulated, Becker and Murphy portray this process as
being analogous to a firm’s investment decision, which is undertaken with perfect foresight
of its expected consequences. Each investment is assumed to be both the result of a freely
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chosen action and reversible in that it decays unless maintained (Elster, 1997, p. 750). In
contrast, Witt’s theory of specialization emphasizes the role of associative learning in shaping
what comes to the attention of consumers in the first place. Thus, what the consumer tends to
specialize in is not so much a consequence of forward-looking investment decisions in which
consumers take into account the future payoffs, but rather a result of the previously acquired
needs as well as the consumer’s knowledge that have both emerged from her learning history.
At the individual level, an important outcome of specialization is that it leads to
specialized consumers having a relatively greater propensity to vary the details of the
consumption activity compared to unspecialized consumers. Essentially, gaining more
detailed knowledge and a more refined set of acquired needs tends to change the way
consumers assess the performance of goods and services. Due to specialization, goods used in
the past that were once deemed adequate may be regarded as no longer suitable. Hence
consumers turn to new types of goods and services that enable them a greater degree of
flexibility and control in changing aspects of the consumption activity or are better adapted to
the more refined state of the consumer’s knowledge and likings, such as high-performance
sports cars (Scitovsky, 1976, p. 273) or high-performance cameras (Windrum, 2005). In other
cases, consumer specialization can lead to greater path-dependence in consumption patterns
and the prolonged use of goods and services if consumers have developed specific skills and
tastes related to a particular good (Moreau et al., 2001). One such example is the analogue
(shutter-operated) camera, which is still used by many experienced camera enthusiasts,
despite the fact that it has been superseded by the digital camera (ibid.). Unspecialized
consumers, on the other hand, whose ability to modify consumption activities is relatively
limited, were more willing to accept the new digital camera that simplified the consumption
act of taking pictures (by doing away with the need for film and film development).
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Beyond the individual level, the specialisation process has important observable
consequences for market institutions (Chai et al.2007). Because markets are essentially tools
that are used by consumers to interact with suppliers, the extent to which they possess
knowledge about the consumption activity will affect a number of market institutions, such
as:
(a)
How suppliers compete for and communicate with consumers. Producers appealing
to specialized consumers offer more specific information about the performance
capabilities of goods and services, information which is relatively less effective on
generalized consumers. Subsequently, the advertising channels used to reach
specialized consumers are more specific. Rather than purchasing relatively expensive
and short advertising space in the mass media, firms would tend to use channels that
may be unique to specialist communities and whose relatively lower popularity would
enable longer or larger advertisements that carry more information appealing to
specialists (Foxall 1990, p. 135). Examples include specialized magazines and radio
shows. In contrast, firms appealing to generalized consumers tend to use advertisements
that highlight the causal connections of goods by relating the good or service to wants
in an easily understood manner. This may come down to a demonstration of the
effectiveness of goods or by simply associating it with positively reinforcing stimuli
(e.g smiling beautiful people) (ibid., p. 133). Such short, appealing commercials can be
communicated to a relatively large audience via the mass media.
(b)
How suppliers coordinate production with consumers.
The coordination of
production and consumption activities reflects the distribution of knowledge across
consumers and producers. This can influence the specific manner by which consumers
and suppliers interact (Langlois and Cosgel 1998, Langlois 2001). In the case of
specialized consumers, who have a greater willingness to produce their own goods and
demand more differentiated goods, coordination mechanisms tend to be more modular,
which allows consumers a greater degree of customization. Langlois and Cosgel (1998)
give the example of the Land’s End catalogue which, by offering a varied assortment of
mix-and-match clothing elements within a coordinated design paradigm, allows
consumers to better fine-tune a wardrobe to their personal tastes (ibid., p. 116). Non13
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specialized consumers, on the other hand, may coordinate with suppliers through
standardized goods and products, such as the American standard for measuring shoe
size via numbers 1-15. Standards can relate to the technical, durable and performance
characteristics of a good (Farrell and Saloner 1985). Whilst inflexible, such standards
provide a universal and convenient institution which helps consumers to find out which
goods and services properly satisfy their wants.
(c)
The type of product innovation that emerge in markets. As discussed above,
specialized consumers come to possess relatively more knowledge; they have a greater
tendency to modify the consumption act to better suit their refined likings. Hence
markets serving these consumers display a greater likelihood that products emerge
which reflect the detailed knowledge and refined likings that specialized consumer
possess, which tend to render them more difficult to use by other consumers (e.g. the
high-performance sports cars or cameras discussed above). In markets catering for nonspecialised consumers, there is a tendency to innovate goods and services that makes
them increasingly convenient and easier to use. An example is pre-cooked frozen meals
available in supermarkets. Whilst these have previously already saved consumers’ time
and effort in not having to cook, a new generation of such meals emerged in the 1990s
which are designed to be more “healthy” in that they contain reduced amounts of
calories and fat. Hence not only is the consumer’s need for food satisfied, but their
concern for being healthy is also addressed.
(d)
The role consumers play in the innovation process. Specialization may also
influence the role that consumers can potentially play in the innovation process.
Recently, a variety of studies have examined the role that expert consumers play in codeveloping novel products and services (von Hippel 2005, van den Ende and Dolfsma
2005). In contrast, non-specialized consumers are less likely to take a lead role in the
introduction of innovation. In this sense, markets in which there are a higher number of
specialized consumers have a higher probability of witnessing the introduction of
novelties which have been co-developed with consumers.
Because of their greater propensity to vary the details of the consumption activity, we
contend that specialized consumers tend to display a relatively higher frequency of self-
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motivated change. This conjecture does not rule out the possibility that the consumption
patterns of unspecialized consumers may not also frequently change. Rather, what is unique
about the consumption patterns of specialized consumers is that they are more likely to
change on their own accord. Unspecialized consumers, in contrast, tend to change
consumption habits as a consequence of changes by their peers or experts that are part of their
social environment (Chai et al., 2007). But it is the specialized consumers who are more
likely to creatively apply the knowledge they possess and pay attention to new information
about a particular consumption act.
Thus there is a greater likelihood that green preferences will emerge on their own
accord among specialized consumers. This has ramifications for the ongoing debate about
whether green preferences may emerge spontaneously. As argued by Buenstorf and Cordes
(2008), pro-environmental behavior can emerge if there is sufficient information about the
effects of excessive consumption on the environment and the consumer has a sufficient level
of specialization in a particular consumption activity to be receptive to such information. At
the same time, these authors are pessimistic about the likelihood that green preferences will
emerge among unspecialized consumers. This is due to a “hedonic bias” which makes
unspecialized consumers prefer alternatives that offer more rewarding sensory experiences
(Buenstorf and Cordes, 2008, p. 649).
4. Rethinking Consumer Sovereignty
Given these positive insights into the way consumers learn about and specialize in new needs,
we will now devise a refined concept of Consumer Sovereignty that is tailored to an
“evolutionary-behavioral world” where needs and preferences change endogenously. In order
to do this, we first take a closer look at the orthodox interpretation of CS with its inherent
shortcomings, and the way it may be modified in light of preference change. We then explore
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the potential of an alternative notion of CS, understood as “opportunity to learn” which turns
out to be applicable in a world where preferences change and are incoherent. As we will see,
our variant of CS opens up a range for policy instruments that both promote sustainability
and are acceptable from a liberal point of view. Of particular interest are “nudges”. In Thaler
and Sunstein (2008), these instruments are suggested as a policy tool to support “libertarian
paternalism”. A nudge can be defined as any aspect of the “choice architecture” that alters
people’s behavior in a predictable way without blocking options or significantly changing
economic incentives to choose otherwise. Nudges achieve this by exploiting well-known
cognitive biases, such as the status quo bias, and framing effects. To illustrate, consider
manipulating the order of healthy and unhealthy dishes at a cafeteria as an example:
Depending on where the cafeteria manager places fruit relative to chocolate bars, say, the
relative consumption of these products may change significantly, even if, on the face of it,
both remain easily accessible.
CS: The orthodox view
William H. Hutt originally coined the term “Consumer Sovereignty” as a normative claim
which implies “that the goodness or success of productive effort can be judged only in the
light of consumers’ preferences” (Hutt 1936: ch. 16). He later added the positive statement
that CS meant “the controlling power exercised by free individuals, in choosing between
ends, over the custodians of the community’s resources” (Hutt 1940: 66).5 For economists,
the main attraction of this principle (in its normative sense) lies in the fact that it seems to
exclude any kind of paternalistic interference with an individual’s choices.
5
See Persky (1993) for the genesis of the term, and Norton et al. (1998) for a survey of alternative definitions of
CS. It is important to take account of the difference between the positive and the normative interpretation of CS:
While the former is often violated (e.g. in monopolistic markets), this does not affect the validity of the latter.
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Already in Hutt’s original formulation, it is apparent that the principle essentially
comprises not one, but two (albeit closely related) normative requirements: Economic
outcomes should be evaluated according to (i) the degree of preference satisfaction they
provide and (ii) the degree to which the “controlling” individuals (i.e., the consumers) are
“free” to pursue their own preferences. Hence, CS is based on two requirements. While the
first one focuses on outcomes, the second one is of a procedural nature.
Combining them is no trivial matter. Consider first a world with given and fixed
preferences. Since Hutt’s original contribution, different versions of CS have been suggested
in the literature, with each one based on its own way – not always convincing or successful –
to combine these two requirements. Notice that overstressing one requirement may lead to
implications that violate the other: It is conceivable that an omniscient and benevolent
dictator might provide individuals with all they long for (reaching an outcome of perfect
“preference-satisfaction”), while eliminating their freedom of choice altogether.6 Hence, with
invariant preferences, a version of CS that would neglect one of these two requirements could
hardly be argued to reflect the philosophical view that motivates the idea of “sovereign”
consumers in the first place.7
The focus of orthodox interpretations has nevertheless been on the preference
satisfaction component: For instance, Rothenberg (1968, p. 327) defines CS as prescribing
simply that “all economic processes are ultimately focused toward satisfying the wants of the
final consumer”. In a much-cited contribution to the field, Harsanyi (1982) proposed his wellknown principle of Preference Autonomy, stating that “in deciding what is good or what is
bad for a given individual, the ultimate criterion can only be his own wants and his own
6
See Rothenberg (1962).
Also the link between CS and the Pareto criterion presupposes a combination of the two components of CS, as
Rothenberg (1962: 271) shows.
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preferences” (ibid., p. 55).8 Importantly, as welfare economics uses well-behaved utility
functions to depict an individual’s “wants and preferences”, these have to obey the standard
consistency (“rationality”) conditions, such as completeness, reflexivity and transitivity.
Apart from excluding ill-informed and anti-social tastes (in order to avoid
counterintuitive implications),9 Harsanyi’s principle does not prescribe anyone to pursue any
particular set of “wants” (we will use the term “needs” in the following) or preferences, but
rather attributes positive normative weight to any subjective idea about the “good life” an
individual consumer may, for whatever reason, hold.10
The second, libertarian, component of CS – the freedom to choose – has been
emphasized in the contractarian literature. This component draws its normative appeal from
the concept of “individualism” (or “normative individualism”, Buchanan 1991) which can be
defined as an “ideology which assigns a higher moral value to the individual than to the
community or society, and which consequently advocates leaving individuals free to act as
they think most conducive to their self-interest” (McPherson 1997, p. 790). Schumpeter
(1980, p. 3) defined what he called “political individualism” – distinguishing it from
methodological individualism – as starting from the “general assumption that freedom, more
than anything, contributes to the development of the individual and the well-being of society
as a whole.”
In Buchanan’s seminal interpretation, the respect for individual freedom to choose is
taken to be justified independently of the question whether the individual is (always or
typically) the “best judge” in matters pertaining to her own well-being. Hence, when this
“epistemic privilege” is shattered by, e.g., behavioral economics insights, this would leave
8
Also, empirical tests that allegedly support CS by showing that consumers value their own purchases more
than they value gifts (e.g. Waldfogel 2005) focus on the preference satisfaction component.
9
See, however, Cowen (1993) for the hazards implied by demanding that preferences be “perfectly informed”.
10
In the words of Scanlon (1991),, the moral idea behind this principle is that “what we owe to individuals is not
concern for the quality of their lives simpliciter but rather concern for the quality of their lives as judged by their
lights” (ibid., p. 33, italics in the original).
18
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the justification of CS intact.11 The price to pay for this immunization strategy is, of course, a
strong normative premise that is perfectly detached from the subjective attitudes of the
affected individuals themselves, i.e., a kind of “liberal paternalism”.12 A refinement of the
“freedom to choose” component of CS has been suggested by Sugden (e.g. 2004, 2009).
According to his “opportunity” criterion, value lies in people being free to act on whatever
preferences they may happen to have in the future. That criterion suffers, however, from the
fact that Sugden’s normative role model, the “responsible” person who unconditionally
endorses all her future preferences without the desire to self-commit, lacks empirical
plausibility (Schubert 2012b). All in all, the “freedom to choose” component leaves some
room for preference-targeting policies, provided they meet with universal consent
(Buchanan) or do not block freedom to choose (Sugden), as in the toolbox proposed by the
proponents of “libertarian paternalism” (see below).
Let us now introduce the assumption that individual preferences change
endogenously. Obviously, preference-targeting policies based on the orthodox view of CS
(described above that is centered on preference satisfaction) run into problems of circularity
at the level of practical policy-making (e.g. Penz 1986, Cowen 1993). While conceptually,
the orthodox variant of CS is just as agnostic about the origin and formation of people’s
preferences as the other variants, at the level of practical application it creates problems for
preference-targeting environmental policies. For if a policy that is deliberately influencing
preferences is bound to “respect” the preferences people have, it faces the problem that it has
itself made the status quo indeterminate: Should people’s ex post- or ex ante-preferences be
11
Rothenberg (1962: 282-83) argues that in light of the many problems inherent to the preference satisfaction
view of CS, the freedom to choose component should be favored, supported by an appeal to the value of
autonomy: “What really can belong to the self and be accurately known is the experience of making and taking
responsibility for choices, whether right or wrong, and seeking to know by this continuing dialogue across the
permeable boundary of the self what if anything is worth preserving.”
12
This is to be distinguished from the “libertarian paternalism” advocated by Thaler and Sunstein (2008), which
we address below.
19
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the benchmark guiding policy? As Brennan (2006: p. 153) puts it, preferences cannot
simultaneously serve as policy criterion and policy instrument.
By decoupling policy evaluation from preference satisfaction, the freedom to choose
variant of CS is not subject to this issue. Giving the freedom to choose absolute authority,
though (as, e.g., in Buchanan’s and Sugden’s approach), is a risky strategy. We argue that it
becomes ever less convincing, the more the fundamentally contingent nature of most
individual preferences is unveiled. There is evidence that under certain conditions,
individuals appear to not even have one, so that “preference” becomes a purely artificial
construct to rationalize observed choices ex post (e.g. Ariely et al. 2003; Ariely et al. 2006).13
This undermines the belief in the unconditional authority of a person’s choices.14 Instead, we
suggest that a change of perspective toward a dynamic interpretation of CS overcomes the
dilemma.
An alternative conception: CS as “opportunity to learn”15
In a dynamic view, CS would be based on the assumption that preference change,
instead of being a potential source of “irrationalities”, is a perfectly natural concomitant of
economic processes. Rather than deliberating about whether a person’s preferences in period
t or her preferences in period t+1 ought to be privileged, the focus is on how individual wellbeing can be assessed in light of there being different learning mechanisms and paths of
preference development. CS is accordingly to be understood dynamically, as requiring that
13
This charge has previously been leveled only against the concept of “utility function”.
As Schumpeter argued on economists’ “uncritical belief ... in the virtues of consumers’ choice”: “Is it not time
to investigate what the bases of this respect are and how far the traditional and, in part, advertisement-shaped
tastes of people are subject to the qualification that they might prefer other things than those which they want at
present as soon as they have acquired familiarity with these other things?” Schumpeter (1949: 380, FN 28,
italics added).
15
To avoid misunderstandings, we wish to clarify here that in the following we stipulate, as a hypothetical
imperative, that policy respects this particular variant of CS.
14
20
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the individuals are free to learn new preferences as they see fit, provided they do not harm
non-consenting others in the process.16
In terms of the distinction between basic and acquired needs (introduced earlier in
section 3) we suggest this dynamic variant of CS to be two-tiered: A social state would then
be legitimate in light of our dynamic variant of CS if it is the case that (i) the individuals’
basic needs are satisfied, and (ii) the individuals have the chance, at the level of acquired
needs, to try out new preferences as they see fit, given their budget constraints.
Learning is a constituent of human flourishing. We claim that as a precondition of
self-development, it is firmly rooted in the tradition of classical liberalism. To illustrate, John
Stuart Mill (1989), inspired by the liberal approach of the German philosopher Wilhelm von
Humboldt,17 argued that “it is the privilege and proper condition of a human being, arrived at
the maturity of his faculties, to use and interpret experience in his own way. It is for him to
find out what part of recorded experience is properly applicable to his own circumstances and
character ... It is not by wearing down into uniformity all that is individual in themselves, but
by cultivating it and calling it forth, within the limits imposed by the rights and interests of
others, that human beings become a noble and beautiful object of contemplation” (ibid., 58,
63).18 Hence, we submit that a dynamic conception of CS – understood as the “opportunity to
learn” – would adequately express fundamental liberal intuitions about the good life. At the
same time, as we will demonstrate below, it is compatible with a range of preferencetargeting sustainability policies, both conceptually and practically. Note that our criterion
differs from the orthodox (“preference satisfaction”) variant of CS in that the actual
16
Needless to say, this proviso also applies to the orthodox and the libertarian variant of CS just discussed.
According to v. Humboldt, “the end of man, or that which is prescribed by eternal or immutable dictates of
reason, and not suggested by vague and transient desires, is the highest and most harmonious development of his
powers to a complete and consistent whole” (as quoted by Mill, ibid., p. 58, italics added). See also Schubert
(2012a).
18
Note that similar normative ideas have been expressed by v. Hayek (1949) and Scitovsky (1976). Our
dynamic variant of CS may also be understood as a generalization of the meta-preference approach (see, e.g.,
George 2004) in that the effective learning of new preferences increases an agent’s chances to align her
preferences with her second-order preferences (i.e., her preferences over preferences), thereby reducing internal
conflict.
17
21
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satisfaction of needs is only required to the extent that it is necessary to ensure the
individual’s ability to continue to learn new preferences. For that to be valid, basic needs
have obviously to be satisfied (see above). The satisfaction of acquired needs, though, is only
important to the extent that it is necessary to occasionally corroborate the association between
an acquired need and the corresponding basic need.
Having “opportunities to learn” also does not presuppose the - quite possibly utopian
– perfect personal autonomy demanded by the libertarian (“freedom to choose”) component
of CS. We argue that not only is there no such thing as a “perfectly autonomous” choice on
the basis of given preferences; “perfect autonomy” is even less attainable in the preceding
process of preference formation: that process is always shaped by a multitude of cultural and
political factors that are impossible to disentangle. That’s why we submit that the use of
“nudges”, as proposed by the advocates of “libertarian paternalism” (e.g. Thaler and Sunstein
2008) does not violate CS, properly understood.19. Peoples’ “autonomy” may be restricted by
the use of nudges (e.g. Gruene-Yanoff 2012, Hausman and Welch 2010), but this observation
does not qualify as a decisive argument against nudging.
In particular, we suggest that our notion of dynamic CS only requires that the total
amount of subjectively perceived chances to try out new preferences not be interfered with by
policy interventions. This would be the case, for instance, if policy would restrict people’s
access to markets or remove existing goods from the shelves;20 in contrast, well-being in our
sense would be unambiguously improved by informing consumers in an unbiased way about
the characteristics of products and services. But even beyond that, we submit that CS (as
defined here) would typically not be violated by policies that use nudges to exploit
19
Nudges have to meet the requirement that the agents’ personal freedom not be restricted. This requirement
originally aims at giving agents (assuming there are any) who are not susceptible to cognitive biases the chance
to act on their rational preferences. In light of our criterion, this “freedom requirement” should rather be
understood as giving real-world, cognitively constrained individuals the chance to try out and acquire new
preferences on their own, possibly contrary to the choice architect’s recommendations.
20
This may look like an arbitrary step to normatively favor the status quo. From a pragmatic point of view,
however, we have to start from somewhere.
22
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consumers’ biases, through, e.g., the provision of biased information, the manipulation of
default rules or the framing of decision contexts. This holds, as long as subjectively perceived
opportunities to learn are not forestalled.21 In addition, we suggest that policymakers should
be transparent at least about the ends associated with the use of nudges.
From the perspective of the evolutionary approach to consumer learning outlined
above, nudges may be even more effective than typically assumed in the literature. For due to
the path-dependent nature of preference learning, an agent that is initially pushed toward
preferring a certain “green” good or service (or characteristic of a good or service) may be led
to acquire a habit for that good or service, redirect her attention to new information
concerning that good or service, and possibly even end up specializing in its consumption. In
cognitive learning theory (e.g. Anderson 2000), it is a well-established fact that consumers
tend to pay more attention to stimuli that coincide with reinforcement. This cognitive
mechanism helps screen which incoming messages are attended to (Witt 2001). Even without
outright specialization, though, we submit that the use of nudges may stimulate a process of
preference change that is based on the dynamic interplay between associative and insightful
learning and may be characterized as “normatively reinforcing”: In period t+1, the agent may
have begun to have acquired a liking for what she has been nudged towards..
This has an important implication for our concept of dynamic CS: When an agent has
never learned a certain preference, the removal of corresponding opportunities will not harm
him, neither in terms of preference satisfaction nor in terms of freedom of choice nor in terms
of “opportunities to learn”, for he does not perceive what he has never learned (Witt 2011, p.
12).22 Thus, when its dynamic ramifications are taken into account, licensing even “light”
21
While the promotion of pro-environmental preferences may be seen as ultimately enhancing people’s wellbeing, properly understood (e.g. Costanza et al. 2007), we abstract from this “paternalistic” aspect in the
following, focusing instead on the policy goal of promoting sustainable behavior.
22
Such an argument would not be valid if we were to assume that the “opportunity to learn” concept of welfare
has “objective” value, i.e. value independent of the individuals’ own subjective perceptions.
23
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interventions in preference formation provides potentially powerful tools to sustainability
policy.
More generally, the notion the removal of corresponding opportunities that the
consumer is not aware of is analogous to the problem of preference endogeneity that plagues
the application of the orthodox CS principle (see above). To illustrate, a policy promoting
liberal education may, over time, contribute to the creation of preferences that, in turn,
support this very policy. Notice that there is an interesting analogue to this phenomenon in
the thought experiment, introduced by John Rawls (1971, pp. 20-21, 48-49) of “reflective
equilibrium”, where people’s unreflected judgments are distilled into abstract principles that
may then, in turn, inspire people to revise their original judgments, which again are distilled
into a new set of principles, etc. In the end, Rawls argues that a set of widely agreed abstract
normative principles will emerge, representing an “overlapping consensus” on which policy
can be based.23
Finally, two possible objections to our revision of the principle of CS ought to be
addressed: First, isn’t it subject to the same circularity issues that make the orthodox principle
a non-starter as soon as preferences change endogenously? Second, isn’t it counterintuitive to
suggest that individuals should be able to learn and try out any new kind of preference they
deem fit, since these can also include anti-social preferences?
As to the first point, circularity is not an issue if well-being is defined as being
constituted by a person’s chance of learning new opportunities, since the endogeneity of the
subjective perceptions underlying those chances does not imply inconsistent evaluations. Put
differently, the policy-maker is not forced to arbitrarily choose whether to base his evaluation
on ex ante or ex post preferences (as in the orthodox CS case), because it is the process of
preference change itself that gains normative value. If people continue to develop their own
23
We are grateful to an anonymous reviewer for urging us to discuss the analogy between Rawls’ model and our
notion of normative self-reinforcement.
24
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preferences, whatever they may be, that is a good thing in itself. Welfare does not hinge on
whether or not an outcome obtains where certain preferences are satisfied.
As to the second point, it is true that in theory, our revised principle of CS would
allow people to acquire anti-social (sadist, racist,...) preferences. Note, however, that in order
to learn them, it is usually necessary to “try them out” in practice. As soon as this involves
inflicting harm to other non-consenting individuals, such behavior would legitimately be
banned by the authorities.
5. Policy Implications: Dynamic CS in practice
As we have shown above, dynamic CS allows sustainability policy to influence processes of
preference formation, provided the agents’ subjectively perceived learning opportunities are
not restricted. While “removing” existing goods from the shelves would be considered
illegitimate, banning the development and sale of novel goods or services that are expected to
be “dirty” would be legitimate, as would be nudging consumers away from those kinds of
goods. This intervention may then gradually shape the agents’ path-dependent processes of
preference learning.
In light of our discussion in section 3, above, different kinds of intervention may be
appropriate for different kinds of consumers. We focus on the difference between relatively
specialized (informed) and relatively unspecialized (uninformed) consumers. The extent to
which consumer preferences are malleable depends on the extent and trajectory of their level
of specialization in a particular consumption activity – i.e. on the extent to which they have
accumulated detailed knowledge and (dis)likings about the goods or services in question.24
We assume that consumers exhibit preferences in a range from highly specialized to
24
Consumers that have been specialized in one period may, of course, become unspecialized again in the next,
and vice versa.
25
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unspecialized, and that market institutions reflect this state of specialization (see section 3,
points (a) to (d)).25
It is easy to see that nudges will be likely to affect specialized consumers differently
than unspecialized consumers. The former, whose preference formation is mainly governed
by insightful learning processes, are typically more receptive to public information
campaigns, while nudges will probably be less effective in stimulating a process of
“normative self-reinforcement” among this subset of consumers. The latter, whose preference
formation is mainly governed by processes of associative learning, will probably be
influenced more easily by nudges, while remaining indifferent to information campaigns,
whether neutral or non-neutral.
Hence, policy should ideally create the institutional conditions for a learning
environment where formerly unspecialized consumers are gradually lead to specialize in
“green” consumption. As Chai (2011) argues for the case of recreational activities, the
likelihood of consumer specialization depends positively on (i) the availability of information
on that particular activity, (ii) the extent to which that information is associated with
reinforcing stimuli, and (iii) the extent to which the consumer is able to creatively modify
details if the activity in question.26 Thus, ensuring that these conditions are met in an
unspecialized consumer’s learning environment can lead to an increase in consumers who
become specialized in that particular consumption area, thereby becoming more receptive to
public information campaigns.
Besides the creation of appropriate institutional conditions for consumers to
specialize, the use of “green nudges” may be required to promote sustainable behavior. In a
25
Some markets are dominated by specialized consumers (e.g. the market for expensive french wines), others by
unspecialized ones, such as the market for lightbulbs, where consumer involvement tends to be very low (Mills
and Schleich 2010). While policymakers don’t need to know the degree of specialization of each particular
consumer, they need to take account of the differential impact of their policy tools on the two kinds of
consumers.
26
The link between consumer specialization and the tendency of consumer's to modify aspects of the
consumption activity has been discussed in the section 3 above.
26
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sense, interventions of this kind may even improve people’s overall opportunities to learn:
One may argue that in the case of most ordinary consumer products the individuals’ learning
environment (i.e. the set of factors, institutional and physical, that shape the way an
individual acquires new preferences or refines her given preferences)27 is biased in favor of
“dirty” goods due to their relative hedonic superiority (Bünstorf and Cordes 2008). In order
re-establish a functioning learning environment – to level the playing field, as it were – and to
promote the variety of goods and services in the marketplace, appropriate nudges (or again,
rather “counter-nudges”) would be called for.
To illustrate the practical implications for the use of environmental nudges, the use of
more effective labelling with respect to the fuel economy of new cars (e.g. by emphasizing
the total costs over a certain time period rather than mileage numbers),28 or the use of
“ambient orbs” to make visible a household’s energy consumption, may be legitimate also
from a strictly liberal point of view.29 The same would apply to the exploitation of people’s
status quo bias by installing the option to use carbon-offsetting as the default when
purchasing air travel tickets. As long as the option to opt out is available at minimum costs
(just a mouse-click), individual freedom to learn is not curtailed. Another nudge could make
use of the phenomenon of hyperbolic discounting (people’s tendency to overvalue immediate
relative to future benefits): House owners or buyers could be nudged toward investing in
energy-efficient technologies (such as isolation) – which typically require substantial upfront
costs. A paying scheme could be proposed in which the buyer initially only pays the price of
27
We suggest this notion as the dynamic counterpart to the “choice environment” introduced by Anand and
Gray (2009).
28
Analogously, standard light bulbs could be labeled more effectively by informing consumers about the
percentage of additional energy they use relative to energy-saving lamps.
29
These are among the few examples of environmental nudges given in Thaler and Sunstein (2008, ch. 12).
Another example, the use of a public “Greenhouse Gas Inventory” does in fact not qualify as a nudge in the
sense that Thaler and Sunstein define that term, for it affects firms’ incentives in a non-trivial way (Hausman
and Welch 2010).
27
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the cheaper – and less energy-efficient – option; the extra costs would be paid later and
automatically deducted from the savings generated by the investment.30
6. Concluding Remarks
In contrast to orthodox environmental economics, Ecological Economics concedes that realworld individuals typically act on preferences that are both incoherent and subject to
endogenous change. However, precisely how and to what extent consumer preferences are
determined by social institutions is not clear. In this respect we have argued that a
comprehensive theoretical account of the consumer specialization process can help shed light
on the circumstances in which preferences are either likely to be “locked-in” due to socioeconomic factors, or are subject to change due to the more “active” role played by
knowledgeable consumers. In the latter case, the probability is higher that “eco-friendly”
preferences will emerge on their own accord.
We have further argued that this requires a reassessment of normative dilemmas that
are so far widely seen as being insurmountable. Reconceptualizing the principle of Consumer
Sovereignty (CS) in light of these “behavioral-evolutionary” assumptions leads to a dynamic
interpretation of CS – as peoples’ “opportunity to learn” – that is in fact compatible with a
range of preference-targeting policies. In particular, the use of nudges may – under certain
conditions – be argued to be acceptable from a liberal point of view.
In other words, since it is the process of preference formation preceding choice that is
truly fundamental (especially in the long-run view of ecological economics), we argue that
policies should be evaluated according to whether they promote “beneficial” processes of
preference formation in the future. In order to do so, we argue, they must deliberately try to
influence those processes. In our view, it is indeed legitimate to do so, as long as the
30
This example is from Bracker (2010).
28
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“sovereignty” of individuals is not negatively affected, with “sovereignty” redefined as
people’s subjectively perceived chances to acquire or learn new opportunities over time.
Some conceptual and practical policy implications have been presented that made use
of positive insights from evolutionary economics into the dynamics of preference change.
Arguing the case for the compatibility of CS and sustainability-enhancing policies may
contribute to making the latter acceptable to a wider audience, including perhaps the majority
of professional economists.
29
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